Giving Up Slightly in 2018, But Only Due to Larger Gifts

Number of Donors, Retention Rates and Smaller Gifts All Decrease

Giving increased by 1.6% in 2018, according to the Fundraising Effectiveness Project’s 2018 Fourth Quarter Report, with philanthropic gains being driven exclusively by donors who gave $1,000 or more.

After a sluggish first half of the year, charitable giving rebounded in the third and fourth quarters of 2018 to end with an overall increase. However, the increase was smaller than in 2017 (when giving increased by 2.0%) with other key giving indicators continuing to fall.

While total giving from gifts of $1,000 or more increased by 2.6%, revenue from smaller gifts decreased. Gifts in the $250 – $999 range dropped by 4.0%, while gifts of under $250 dropped by 4.4%. The number of donors also fell, as did retention rates (the percentage of donors who continue to give to the same organization).

“The headline may show an increase in giving, but that increase masks some serious long-term trends that are presenting huge challenges to the sustainability of fundraising and philanthropy,” said Elizabeth Boris, chair of the Growth in Giving Initiative. “Giving is increasing because of larger gifts from richer donors. Smaller and mid-level donors are slowly but surely disappearing—across the board, among all organizations. Philanthropy should not and cannot be just the domain of the wealthy, and the entire sector needs to look at how we reach out to and engage these donors.”

The Disappearing Donors

The total number of donors dropped by 4.5% from 2018 to 2017. In that total are the following groups:

New donors to an organization, which dropped by 7.3% from 2017

Newly retained donors, those who have given a second time to an organization, which dropped by 14.9%

Recaptured donors, those who stopped giving to an organization but returned and gave again to the same organization in 2018, which dropped 1.6%

Repeat retained donors, who have been giving to the same organization for at least three years, which increased by 0.2%.

The overall retention rate—the percentage of all donors making a gift to the same organization in 2017 and then again in 2018—dropped almost two percentage points to 45.5% from the 2017 rate. The repeat retention rate (the percentage of repeat donors who gave in 2017 and then again in 2018) remained fairly steady at 61%, while the new donor retention rate (donors who gave in 2017 for the first time and gave again in 2018) fell four percentage points to 20.2%.

“What’s concerning about this data are the significant decreases in the New and Newly Retained Donor Groups,” said Ben Miller, chief analytic officer at DonorTrends, which created the final report. “From past reports, we’ve seen that charities seemed to do well at acquiring new donors but retaining them was a challenge. Now we’re seeing difficulties in acquiring donors, and that could spell real trouble with fewer donors giving. Again, it’s great to see giving increasing overall, but the question remains around the long-term sustainability of the sector if these trends continue.”

Impact of the Tax Bill?

Trends and changes in giving are not typically caused by one single factor. However, the tax law signed in late 2017, which doubled the standard deduction and likely caused many taxpayers to take fewer itemized deductions including the charitable deduction, may have played some role in the results.

“I think one of the reasons that we’re seeing more larger gifts is that donors had to give more—and have other itemized deductions—in order to exceed the standard deduction threshold,” said Jay Love, chief relationship officer and co-founder at Bloomerang, one of the three data providers for the Growth in Giving Database. “What’s fascinating is that over a third of donors—37.4%—in the $1,000-plus gift range were new to that category. That’s a lot of new donors giving significantly more, which tells me that some of those donors were likely giving larger sums in order to itemize their deductions. Smaller gifts also fell, as those donors couldn’t take advantage of the charitable deduction anymore.”

A direct comparison of giving in fourth quarter 2018 vs. fourth quarter 2017 shows potentially more impact from the tax changes. Giving spiked in all three giving categories in the fourth quarter of 2017, when President Trump signed the tax bill into law. In fourth quarter 2018, all three giving categories fell. Gifts of more than $1000 fell by 5%, while gifts in the $250 – $999 range decreased by 12%and gifts under $250 dropped by 15%.

Based on conversations with clients and charities across the country, it is likely that the full impact of the tax bill may not be felt until the end of 2019, noted Jeff Gordy, president at NEONCRM, also a data provider. “I think a lot of donors won’t fully realize how the tax changes affect them until they do their taxes this year.”

Looking Ahead

“These are overall numbers for the entire sector, and despite all the challenges, giving did increase,” said Jon Biedermann, vice president at DonorPerfect, the final data provider. “What’s most important are the decisions your organization makes, its giving and fundraising strategy, and its willingness to focus on donor cultivation and stewardship.” Biedermann added, “None of this research would have been possible without the fantastic collaboration of my industry colleagues, who are also my competitors. We invite other industry colleagues to join our efforts so that we can all work together to reverse these alarming trends.”

Data from the FEP’s 2018 Fourth Quarter Report is based on a panel of more than 4,500 charities selected from the Growth in Giving Database of 161 million individual transactions, which includes more than $72 billion in donations and 18,348 organizations since 2005. Organizations included in the panel have raised $5,000 or more from 25 or more donors in each of the last six years. Revenue figures have been adjusted for inflation.

Overall donations to charities in the U.S. increased by 2% in 2017 while the number of donors increased by 0.7%, according to the Fundraising Effectiveness Survey Report.

The report, a product of the Fundraising Effectiveness Project (FEP) and the Growth in Giving database—the world’s largest database of actual charitable donation history—also found that the donor retention rate increased slightly to 45.5%.

The donor retention rate—that is, the percentage of donors who gave in 2016 and again in 2017 to the same organization—has hovered in the mid-40th percentile for the past decade, underscoring just how difficult it is for nonprofits to keep donations flowing from their supporters.

“While the overall growth in giving of 2% is positive, the millions of donors who do not repeat their giving is very concerning,” said Erik Daubert, chair of the FEP. “The fact that nonprofit organizations are losing 54.5% of their donors from one year to another is not a sustainable strategy.”

Daubert also noted how and why the FEP’s findings are different from other sources of data on the health of the U.S. philanthropic sector. “The FEP’s database looks at more than 13,500 organizations and $68 billion in contributions—actual dollars given to charities providing service—and does not include entities like donor-advised funds or complex algorithms to determine overall giving. The database includes a broad representation of many different subsectors and size of charitable organizations, making it an accurate reflection of what’s happening in philanthropy and fundraising.”

The report found that the average gift amount crept forward—a 1% increase from $1,024 in 2016 to $1,037 in 2017. However, nonprofits with less than $100,000 in contribution income declined 8.2% from 2016 to 2017. Meanwhile nonprofits with more than $500,000 in contributions increased 9% in the same time.

“What we’re seeing in general is textbook fundraising—larger organizations faring better than smaller ones,” said Steve Birnbaum, vice president of SofTrek Corporation, a contributing data partner to the FEP. “There are always exceptions, but larger charities—with more available resources to direct towards fundraising—will typically do better than small ones.” Birnbaum also noted that the strength of the report resides in its detailed focus on donor retention and analysis of gifts and donors over many years.

“The study looks at the data in many different ways,” said Lori Overmyer, CFRE, MBA, chair of the Association of Fundraising Professionals (AFP) Research Council. “For example, we know that every $100 gained in 2017 was offset by $96 in losses through gift attrition. At the same time, every 100 donors gained in 2017 was offset by 99 lost donors through attrition. The FEP encourages charities to delve into their own data and provides tools and templates for organizations to use in analyzing their new, lost, lapsed and recaptured donors.”

For more information on the 2018 study, and to download the Annual FEP Survey Report, visit www.afpfep.org/reports

While relatively little giving occurs in the first three months of the year, data from the Fundraising Effectiveness Project’s (FEP) 2018 First Quarter Report shows some early warning signs for charities and giving.

The Report, which looks at giving data from January to March 2018 and compares it to the same time period in 2017, reveals that every metric the FEP analyzes is on the decline—with the exception of revenue produced by donors giving $250 or less.

Key metrics in the study include the total number of donors (down 6.3% compared to first quarter 2017); total revenue (down 2.4%); and overall donor retention rate (the percentage of donors who continue to give to the same organization from one year to the next, down 4.6%). The number of new donors fell significantly (down 12%), as did the number of newly retained donors (new donors last year who have made a second gift this year, down 18 percent).

“The reason we’re so concerned with these first quarter numbers for 2018 is because of what we saw in 2017,” said Jon Biedermann, vice president of DonorPerfect CRM Fundraising Software. “For the first three quarters of 2017, giving was way behind the pace of 2016. Only a record-breaking 4th quarter increase is why giving increased overall by the end of the year. So far, giving is off to an even worse start in 2018, so we’re concerned about what charities may experience in their fundraising throughout the year.”

Elizabeth Boris, founding director of the Center on Nonprofits and Philanthropy at the Urban Institute, cautioned that there were two major caveats to the findings. First, previous studies by other organizations have found that a large majority of giving occurs in the final three months of the year, October through December. Declines in giving in the first quarter and beyond do not necessarily portend a year of decreased giving.

Second, the new federal tax law, passed late last year, significantly changed giving incentives and may have been a key factor in the extraordinary level of giving that occurred in the last quarter of 2017 (a 47% increase for donors donating $1,000 or more compared to the last quarter of 2016). While it is too early to conclusively state what the exact impact of the new tax law was on giving, it is very possible that the higher levels of giving in the fourth quarter of 2017 created a sense of donor fatigue and led to lower-than-usual levels in the first quarter of 2018.

“The bottom line is that we are now in a very different charitable landscape than we were 12 months ago,” said Jay Love, chairman and chief relationship officer of Bloomerang. “The work of the FEP and the use of the Growth in Giving database—the world’s largest database of actual nonprofit donation history available for public and private research—is going to be critical as we help charities navigate this new environment and inspire donors to support their causes.”

Another concern that the latest data underscores is the continuing trend of fewer donors giving more money. With the number of donors down more than six percent, but giving revenue decreasing by just 2.4 percent, the charitable sector continues to see fewer, typically wealthier donors accounting for more and more of giving totals. “This situation simply isn’t financially sustainable for the 1.5 million organizations that make up the charitable sector,” said Mike Geiger, MBA, CPA, president and CEO of the Association of Fundraising Professionals. “Donors who give $50 – $250 annually are the mainstay of many charities that don’t have major gift programs. The slow, long-term drop in the number of these donors is jeopardizing the work and impact of many charities.”

Data from the FEP’s First Quarter 2018 Report is based on a panel of charities selected from the Growth in Giving database of 154 million transactions from 17,597 organizations and $68 billion in donations since 20015. Organizations included in the panel have raised $5,000 or more from 25 or more donors in each of the last six years. Revenue figures have been adjusted for inflation.

Jeff Gordy, CEO of NeonCRM, which contributes data, notes that charities should be very concerned by the decrease in recurring giving, as well as the decrease in major gifts. “Not only are nonprofits attracting fewer major donors, but they are not retaining the donors they already have,” said Gordy. “Nonprofits will need to do a better job of promoting their work and staying in touch with their donors to reverse this trend. This report covers the averages, but there are many nonprofits that are breaking this mold and doing much better.”

You can download the Fundraising Effectiveness Quarterly Report for Q1 2018 here.

As a fundraiser, you probably know the 80/20 rule: About 80 percent of your gifts will come from approximately 20 percent of your donors.

The 80/20 rule is based on the Pareto concept: a small proportion of causes produces a large proportion of result. The general 80/20 rule appears in many different professions, including science, sports, computer software, and occupational health and safety.

Today, with better technology, research projects like the Fundraising Effectiveness Project (FEP) can drill down into detailed giving data from thousands of charities. And we’re learning that the 80/20 rule, while a useful rule-of-thumb, it isn’t as precise as we need.

Applying the Pareto Principle to data from the AFP-sponsored Growth in Giving Initiative enables FEP analysts to consistently give us new research-based rules, or ratios, that as fundraisers, we need to understand. Most importantly:

Seventy-six (76) percent of contributions comes from four (4) percent of donors—those who have given $5,000 or more.

That’s right, basically three-quarters of giving comes from the top four percent of our contributors!

Furthermore, as shown in the graph below, the corollaries to our new 76/4 figure are:

89 percent of giving comes from the top 14 percent of donors (those who’ve given $1000 or more) and

96 percent of giving comes from the 33 percent of donors who gave $250 or more.

Try this for a truly sobering figure about how top-heavy giving can be: two thirds of donors (67 percent) account for only four (4) percent of giving!

These are the new Pareto figures for fundraising. Now, of course, your analyses may vary. Every charity will be different.

For this analysis, FEP selected data from the Growth in Giving Initiative (GiG) Database at the Urban Institute for 7,015 small-to mid-size organizations.These organizations raised $6 billion in 2016 from over six million donors. GiG Database providers include Bloomerang, DonorPerfect, Neon and eTapestry (Blackbaud).

But these findings have remained steady through the last six years of data that the FEP has been tracking giving (and receiving more and more data from an increasing number of participants).

What do we learn from these figures? Three things. First, think about those two-thirds of donors who gave less than $250 and account for about four percent of giving. How much are we spending on them? How are we cultivating them? A lot of people in that group might be new or one-time donors, and we know from other FEP data that donor retention rates for new donors giving under $100 average around 21 percent. If we can turn some of these under $100 donors into, for example, $20/month recurring supporters, we can dramatically transform our giving.

Second, we must identify our key $5,000 plus supporters—as well as potential key supporters—and enhance our donor cultivation efforts for them. Cultivation is critical! Identifying top supporters is easy, but it’s the supporters one or two tiers down— those in the $250 to $999 category, but not yet in the $1,000 up category—that we need to understand and engage with.

Third, we can use new technology to gain even more detailed and accurate data about fundraising—but we must use it! There are great tools, such as AFP’s free Fundraising Fitness Test, on the FEP website (www.afpfep.org/tools) that you can employ to benchmark and analyze your own giving data

I encourage everyone to participate in the FEP and provide their giving data to the project. Working with fundraising software providers, the FEP takes steps to ensure that the data used is anonymous. Talk to your provider if they’re not already involved, or contact the FEP (at fep@afpnet.org) for more information on how to help.

To be the most effective and efficient fundraisers possible, we need the most accurate and detailed data possible. The Fundraising Effectiveness Project is a valuable tool in improving fundraising and understanding what is working, what isn’t, and where we should best focus our efforts.

Our new rules for success, like 76/4, are a direct result of having the best data. It’s time we all got involved for the betterment of our individual organizations and the professional overall.